{"id":59655,"date":"2014-09-02T03:04:22","date_gmt":"2014-09-02T07:04:22","guid":{"rendered":"http:\/\/countingpips.com\/?p=59655"},"modified":"2014-09-02T03:04:22","modified_gmt":"2014-09-02T07:04:22","slug":"why-you-shouldnt-listen-to-warren-buffett-on-stocks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/09\/why-you-shouldnt-listen-to-warren-buffett-on-stocks\/","title":{"rendered":"Why You Shouldn\u2019t Listen to Warren Buffett on Stocks"},"content":{"rendered":"
September 2, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

You know the old saying, ‘Do what they do, not what they say.’<\/p>\n

That saying applies to people who say one thing and then do another.<\/p>\n

It can be misleading.<\/p>\n

It can even be hypocritical.<\/p>\n

But sometimes the people who say one thing and do another don’t even realise that they aren’t following their own advice.<\/p>

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Often we’ll give them the benefit of the doubt. But we won’t do that with Warren Buffett<\/strong>…<\/p>\n

Warren Buffett is the world’s most famous stock<\/strong><\/a> picker.<\/p>\n

He’s made a multi-billion-dollar fortune by analysing and investing in stocks and specific companies.<\/p>\n

He also takes big risks. He invests in the market at times when few others would take the risk.<\/p>\n

He has also invested in complex securities and derivatives — including the type of investments that only Harvard’s brightest can fathom.<\/p>\n

In doing so, Buffett has built a fortune to make him the world’s third-richest person. He’s worth US$67.3 billion.<\/p>\n

Given all that, you’d think Buffett would have some useful advice about taking risks and making the most of the market. You would be wrong. That may be how he made his fortune, but that’s not how he suggests you<\/em> build your<\/em> wealth.<\/p>\n

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Bad advice from the Oracle<\/strong><\/h2>\n<\/p>\n

According to the Financial Times<\/em>:<\/p>\n

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‘Mr Buffett said his advice for the cash left to his wife was that 10 per cent should go to short-term government bonds and 90 per cent into a very low-cost S&P 500 index fund.<\/em>’<\/p>\n<\/blockquote>\n

This is from the guy known as the ‘Oracle of Omaha’. He’s the world’s greatest investor<\/a>. And yet, we can’t think of worse investment advice than telling someone to put 90% of their wealth in an index fund.<\/p>\n

There are a number of reasons why this is bad advice.<\/p>\n

The first is clear.<\/p>\n

If index investing is the best way to build and preserve wealth, why on earth has Warren Buffett spent the past 60 years of his life searching for good investments?<\/p>\n

Why does he bother looking at balance sheets and profit and loss statements?<\/p>\n

Why does he try to ‘understand’ a company before he invests in it?<\/p>\n

If investing in a low-cost index fund is the path to riches, why is no one on the Bloomberg Billionaires Top 100 list rich due to investing in low-cost index funds?<\/p>\n

If this really were the way to grow rich, Mr Buffett could have put all his money in Vanguard’s index fund when they launched it in 1975. He could then have spent the past 39 years playing golf or going on holidays.<\/p>\n

The reality is that Mr Buffett knows as well as we do that throwing cash into an index fund isn’t the way to get rich.<\/p>\n

But those aren’t the only reasons to ignore Buffett’s index fund advice.<\/p>\n

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Do what he does not what he says<\/strong><\/h2>\n<\/p>\n

Let’s take the biggest reason of all — the performance of Warren Buffett’s investment firm, Berkshire Hathaway [NYSE:BRK\/A]<\/strong>, from 1977 to 2012.<\/p>\n

According to a report from CNBC last year:<\/p>\n

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‘Since 1977, Berkshire has averaged a 26.3 percent annual gain vs. the S&P’s 8.8 percent advance.<\/em>’<\/p>\n<\/blockquote>\n

Do you see what we mean when we talk about doing one thing and saying another?<\/p>\n

Sure, go ahead, take Buffett’s advice. Over the long term you may make a nice 8–12% annual return.<\/p>\n

If that makes you happy, fine.<\/p>\n

But, quite frankly, why would you settle for that when you can do as Buffett does<\/em> rather than as he says? That means being the type of investor that Buffett criticises — someone who looks to actively manage their wealth.<\/p>\n

Think about it further. Buying an index fund is the opposite of everything Buffett stands for. The Buffett worshipers always say how he only buys quality businesses.<\/p>\n

Does anyone really think that every stock in the S&P 500 index is a good business? There would be some bad businesses in that index, just as there are bad businesses in the Aussie S&P\/ASX 200 index<\/a>.<\/p>\n

We like the idea of buying an index to get some exposure to the market — something is better than nothing. But if you want good advice, it should always be to buy individual stocks. You should choose the stocks you buy rather than just buying a whole bunch of stocks at random.<\/p>\n

Now, if past experience is anything to go by, the Buffett crazies will be up in arms at this. They’ll ask who we are to question the investment advice of a billionaire.<\/p>\n

The reality is we’re simply pointing out that investors should ignore Buffett’s advice and instead follow his example. Buffett has made a lot of money. We’d like other investors<\/a> to make a lot of money too. That doesn’t mean buying index funds.<\/p>\n

It means speculating, taking risks, and buying the best companies (stocks) that money can buy.<\/p>\n

Cheers,
\nKris+<\/a><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Why You Shouldn\u2019t Listen to Warren Buffett on Stocks<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au You know the old saying, ‘Do what they do, not what they say.’ That saying applies to people who say one thing and then do another. It can be misleading. It can even be hypocritical. But sometimes the people who say one thing and do another don’t even realise that they aren’t following […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-59655","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=59655"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59655\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=59655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=59655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=59655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}